By KURT EICHENWALD

Published: October 27, 2004

By forcing out its chief executive and reforming its business operations, Marsh & McLennan is executing a strategy straight from the first page of the corporate damage-control playbook. Unfortunately, the company waited until the third quarter of the game to get the play going.

Indeed, people inside and outside the company said, there is little doubt that months of high-level fumbling at Marsh in dealing with an investigation by Eliot Spitzer, the New York State attorney general, transformed what could have been a manageable -- though painful -- scandal into an all-out corporate crisis.

And, these people said, the internal struggles continued until the last moment before Monday's decision to remove Jeffrey W. Greenberg as chief executive of Marsh, the world's largest insurance broker. Initial discussions among the independent directors to bring in one Marsh executive as the new leader were abandoned when they learned that Michael G. Cherkasky, a company executive who had no insurance background and was Mr. Spitzer's former boss, might resign if he was not selected for the job, these people said.

Still, people involved in the case and outside legal experts agree that Marsh snapped awake after Mr. Spitzer decided to sue the company on charges that it took what amounted to kickbacks from insurers through the use of incentive fees and rigged markets by soliciting phony bids. Then, they said, the company moved quickly down a well-worn path, trying to demonstrate its break with the past.

Every major executive identified as playing a role in the scandal has been suspended. Mr. Greenberg was shoved out. And yesterday, Marsh announced a series of corporate reforms.

The company also said it would create a corporate compliance program to be run by executives reporting directly to Mr. Cherkasky.

''When you look at Marsh, it is safe to say they're now following the guidelines of what responsible companies should do when they find a problem,'' said Samuel W. Seymour, head of the white-collar practice at Sullivan & Cromwell in New York.

There are plenty of reasons that companies opt for rapid change when confronted with scandal. The most obvious reason is that it works.

For example, in the summer of 1991, when the senior officers of Salomon Brothers, then an independent trading house, were confronted with evidence that one of their top traders had submitted fake bids in the Treasury securities market, they delayed for months before notifying the government. Once that news emerged, it was only a matter of days before Salomon's top managers were out. Warren E. Buffett, the famed Omaha investor who was a top shareholder in the firm, stepped in on an interim basis as chairman.

Mr. Buffett quickly reined in Salomon, imposing tighter controls and cutting off onetime customers with bad reputations. In the initial days of the scandal, much of Wall Street was already writing Salomon's obituary. But, in large part thanks to Mr. Buffett's rapid and decisive breaks with the past, the firm recovered and thrived. It is now part of Citigroup Global Markets, formerly Salomon Smith Barney.

The same rapid-fire approach worked in 1997, when what was then known as the Columbia/HCA Healthcare Corporation was hit by a series of fraud scandals -- and then raided in multiple states by the Federal Bureau of Investigation.

At first, the private hospital company's managers, led by Richard L. Scott, then the chief executive, dug in their heels, proclaiming the developments as the cost of doing business in a highly regulated industry. But soon, Mr. Scott and some of his underlings were gone, ousted in a boardroom coup. The new chief executive was Dr. Thomas Frist, the former head of one of the companies that had been purchased by Columbia/HCA.

Dr. Frist quickly broke with the company's troubled past: he declared it was altering or halting many of the business practices that had attracted the interest of federal investigators or had been the subject of wide public criticism. Those practices included selling interests in the company's for-profit hospital to the doctors who admitted patients to them, which had raised suspicions of improper kickbacks.

Many of the abandoned efforts -- much like Marsh's use of contingent commissions -- had long been considered by both Columbia/HCA and Wall Street analysts as integral to the company's growth and profitability. But with its rapid reforms -- including the establishment of a comprehensive corporate ethics and compliance program -- the company was able to stabilize and recover.

The company paid billions of dollars in fines and moved on, ultimately changing its name to HCA. Amid the scandals that rocked corporate America in recent years, senior HCA executives quietly congratulated themselves that the company had had the opportunity to clean itself up years earlier.

If such results left any doubts about the proper way for corporations to deal with scandal, actions by the Justice Department and the Securities and Exchange Commission in recent years should have ended them.